Wholesaler Spar expects headline earnings to plummet by up to 53% in the year to end-September, but assured investors it will not go to the market to raise capital from shareholders.
JSE listing rules require firms to tell the market when earnings will be at least 20% higher or lower than the comparable period.
The share price initially dropped by just more than 5%, but closed 4.11% lower, at R112.52, on Thursday.
Two directors suddenly resigned on Friday, giving an indication to the market that there may be poor results.
A range of issues have led to the revenue drop, but the biggest culprit is the problems with its new SAP software implementation in KwaZulu-Natal.
This is Spar’s biggest region and it is selling lower volumes to stores that are buying directly from suppliers and bypassing wholesaler Spar. This has led to a loss in profits of R720m for the year end-September. Spar’s IT director resigned a few months ago.
Spar also faces competition from on-demand delivery services such as Checkers Sixty 60, which undercut its model of stores being conveniently placed in the suburbs.
Alec Abraham, from Sasfin, said the “disastrous SAP rollout” and competition by delivery services were “behind the group’s lagging SA revenue numbers”.
“My main area of disappointment in this earnings guidance statement is the fact that the trading problems caused by the SAP issue were not resolved in the second half of the year and trading has deteriorated in Europe, against a substantial rise in finance costs.”
The heavily indebted group saw an increase of R433m in finance charges as interest rates rose globally. Most of its debt is based in Ireland and Poland.
Its banking groups renegotiated debt covenants, which suggests it did not meet them. These are ratios used by lenders to determine the company’s ability to earn enough to service debt.
Spar said it expects its operating profit to be R1.6bn-R2bn lower than its R3.4bn operating profit last year.
Its headline earnings per share (HEPS) will drop 43%-53% to 545c-661.5 a share. Its earnings per share, including some impairments, will drop 86%-76% to between 156.5c and 268c.
Impairments are accounting changes and reflect that the business is worth less or will earn less than previously expected.
It is impairing R120m in Ireland and R444m in Poland, where its wholesale business is unprofitable and will be sold or exited.
Abraham said: “While the SAP and Poland write-offs had been guided for, I’m not certain that the Irish meat business write-off was widely expected.”
Update: November 23 2023
This story has been updated with new information.
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